What is outsourcing and what are its advantages?
Over the last decades outsourcing has become an integral part of many business models. What exactly is it and what are the main benefits of using such a business practice?
Let's start from the beginning — the word „outsourcing” is a combination of three English words, i.e., „outside”, „resource” and „using”. And this is exactly what the outsourcing is — a business practice of transferring to a third party all, or selected, tasks, functions, processes and services of the company’s operations. What is important, Business Process Outsourcing (BPO) rather then relating to the implementation of an individual order, most often refers to maintaining a constant, long-term cooperation with a contracted third-party organization. Outsourcing is usually provided by industries such as IT, finance & accounting, marketing and Human Resources (HR). The most common services include customer service (call centers or contact centers), sales and marketing support, bookkeeping, creative services and research. The benefits of outsourcing an external contractor are substantial — from optimizing company’s costs to a competitive advantage and potential global reach of the business.
Cost reduction
Companies usually decide to outsource a service, when hiring an external organization is cheaper than using in-house resources. Where do the cost reduction come from? With outsourcing it comes on at least three levels. Firstly – when using a third party’s services, you do not need to invest in your own equipment and technology base. Secondly – by hiring an external company, you reduce operating costs such as salaries and overhead; also you do not bear the costs related to hiring new people or training your employees. Last, but not least – You save on the maintenance costs of the office space rental which would be required to develop the service in-house. Cost-savings achieved by outsourcing a service helps the company to release capital and invest it in other areas of its operations.
Focus on core competencies
Outsourcing helps in-house employees to focus on the core aspects of the business. Delegating less critical functions or specialized tasks to a carefully selected outside organization leads to greater productivity and efficiency of the internal staff, who can focus on their primary skills, tasks and goals, strengthening the core processes and thus improving the business.
Latest Know How
Delegating tasks to a third party supplier and using its know-how can significantly improve the company’s performance. No surprise, that when tasks are handled by experienced professionals and dedicated leaders, who are up to date with the latest news in the industry, the chances of business growth become substantial.
The most effective tools
Technology is often quite expensive. Outsourcing helps companies get access not only to the experienced professionals, but also to the advanced infrastructure, facilities and technology tools. To put it simply — hiring a third party company is a great solution, when you need tools, the purchase of which does not pay off. With outsourcing it becomes affordable, helping your business to grow. What is more, an external company uses such tools and solutions on a daily basis, which ensures that activities are performed in the most efficient way possible.
Business flexibility
Every business changes with time. Its scales goes up or down, but also customers demands and commercial conditions change. An outsourcer contractor follows the changing needs of the company to adopt to its new targets and match its new demands. The key to such a flexibility is an appropriate service agreement with a contractor. When done correctly, can be a great business opportunity both for the outsourcer and for the client.
Increased reach
It is quite obvious, that with experienced professionals and advanced tools the business has more opportunities to grow. However, working with external resources can also help a company to go global. When this is a plan, the outsourced tasks can be contracted either to a local firm or to a foreign partner depending on the goals and needs of the company.
Outsourcing was first recognized as an attractive business strategy in early 1990’ becoming now one of the most popular and effective business models. According to the experts, the COVID 19 pandemic will accelerate its growth and expansion. With market globalization, remote work and digital transformation outsourcing is now among top trends for business — a trend that is likely to grow in the years to come.
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